Please standby. Good day, ladies and gentlemen. And welcome to your Methode Electronics First Quarter Fiscal 2021 Results Call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded [Operator Instructions]. At this time, it's my pleasure to turn the floor over to host, Vice President of Investor Relations, Mr. Rob Cherry. Sir, the floor is yours.

Thank you, Operator. Good morning. And welcome to Methode Electronics fiscal 2021 first quarter earnings conference call. For this call, we have prepared a presentation entitled Fiscal 2021 First Quarter Financial Results, which can be viewed on the webcast of this call or found at methode.com in the Investors section. This conference call contain certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports. Such factors may include, without limitation, the following; impact from pandemics, such as the COVID-19 pandemic; dependence on the automotive, appliance, commercial vehicle, computer and communications industries; dependence on a small number of large customers, including two large automotive customers; recognition of goodwill and long lived asset impairment charges; cost associated with restructuring activities; international trade disputes resulting in tariffs and our ability to mitigate tariffs; timing, quality and cost of new program launches; ability to withstand price pressures, including pricing reductions; failure to attract and retain qualified personnel; ability to successfully market and sell Dabir Surfaces products; currency fluctuations; customary risks related to conducting global operations; costs associated with environmental health and safety regulations; ability to withstand business interruptions; ability to successfully benefit from acquisitions and divestitures; investment in programs prior to the recognition of revenue; dependence on the availability and price of materials; dependence on our supply chain; judgments related to accounting for tax positions; income tax rate fluctuations; ability to keep pace with rapid technological changes; breaches to our information technology systems; ability to avoid design or manufacturing defects; ability to compete effectively; ability to protect our intellectual property; success of recent acquisitions and/or our ability to implement and profit from new applications of the acquired technology; ability to manage our debt levels in any restrictions thereunder; and impact to interest expense from replacement or modification of LIBOR. At this time, I'd like to turn the call over to Mr. Don Duda, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone and thank you for joining us today for our fiscal 2021 first quarter earnings conference call. I'm joined today by Ron Tsoumas, our Chief Financial Officer. Both Ron and I have opening comments and afterwards we will take your questions. Let's begin on Slide 4 with the business highlights from the first quarter. I'll start with the situation with COVID-19. I continue to be proud of our employees incredible commitment to Methode and supporting our efforts to provide a safe work environment. All of our facilities have remained open to some degree through this challenging period, and most of our hourly employees have returned to a full work week. Our offices have systematically begun to reopen, but we're also still making prudent use of work from home for our office staff. We anticipate that we will see some level of headwind risk and uncertainty from the COVID-19 pandemic throughout the fiscal year. However, as I stress last quarter, we will continue to invest in our business for long-term growth. Turning to the business performance, while the quarter was clearly down due to the pandemic, we saw a significant rebound in automotive demand in the latter half of the quarter. As you recall, most of the auto OEMs were effectively shut down in the first half of the quarter. And when reported our fourth quarter results, we were concerned about the stability of OEM production schedules based on the pandemic circumstances. Please turn on Slide 5 for a summary of our financial results. Methode's first quarter sales decreased 29.3%. Our net income decreased 26.9% and our diluted earnings per share decreased 28% for the fiscal quarter ended August 1, 2012. The resulting decremental net income margin of 10% was helped by cost reductions and…

Thank you, Don, and good morning everyone. First quarter sales decreased 29.3% or 79.3 million to 190.9 million in fiscal '21 from 270.2 million in fiscal '20. Sales in the first quarter were negatively impacted by COVID-19, especially in the May through mid-June timeframe. The production shutdowns mostly impacted the automotive and industrial segments. The impact of foreign currency on sales was not significant in the quarter. First quarter net income decreased 7.6 million to 20.7 million or $0.54 per share from 28.3 million or $0.75 per share in the same period last year. First quarter net income benefited from a discrete tax benefit of 7.8 million and higher other income of 3.4 million primarily due to COVID-19 assistance of 2.9 million. Please turn to Slide 9. The sales drivers from fiscal '20 first quarter to fiscal '21 first Quarter were a net $92 million sales reduction due to the impact of COVID and other lower volumes partially offset by $14 million of new launches. Foreign currency translation reduced sales by 1 million, the impacted segments when mostly automotive and industrial. Moving to Slide 10, first quarter gross margins were lower in fiscal '21 as compared to fiscal '20, mainly due to the reduced sales due to the impact of COVID. Product mix was also unfavorable as 26.6% decrease in sales in the higher margin industrial segment negatively impacted consolidated gross margins. Physical fiscal '21 first quarter margins were 23.6% as compared to 28.1% in the first quarter of fiscal '20. The fiscal '21 first quarter margins included 1.9 million of restructuring expense. Without the restructuring expense fiscal '21 first quarter gross margins would have been 24.6%. First quarter selling and administrative expenses as a percentage of sales increased 190 basis points year-over-year to 13.9%, compared to 12% in the…

Ron, thank you very much. Melinda, we're ready to take questions.

Thank you. The floor is now open for questions. [Operator Instructions] And our first signal comes from Matt Sheerin with Stifel. Please go ahead.

I just wanted to ask about the sort of the near-term order trend you're seeing. I know that on your last quarter commentary a couple of months ago, you talked about week-to-week volatility in terms of customer order trends within automotive. Could you talk about what you're seeing now, you obviously have some confidence, given your guidance. So any metrics you can give us and also by region in terms of demand trends, that would be very helpful. Thank you.

I hesitate to use the word stabilize because while orders have been, say more predictable, the releases and so on are still seeing a lot of variability in mix, which causes us to be concerned because usually in automotive, in any of the regions, you're scheduled for the first, let's say, two to three months and usually very stable and we are still seeing volatility in that. They have increased which gives us the ability to give at least sales guidance for the quarter. But there still is enough uncertainty as we go forward. And as I mentioned in my remarks, how much of that is pent up demand versus the automotive business worldwide returning to some stability. So where we are cautious going forward. To your question about the regions, the U.S. automakers have opened their [indiscernible] that drives the portion of our automotive sales but we will say they are -- the mixes is variable. In Europe, it really is a month to month type business right now, again, usually you see three months and pretty steady forecasts. It is still very volatile, some months are better than others, but I will say that it has picked up. And then in China, we see growth there and [indiscernible] back to normal but and that's probably a good way of putting. So we kind of combine all of that. I don't want to say that I'm cautiously optimistic. I just feel better about where we are versus we are at the beginning of the first quarter there it was very difficult to forecast anything. And it's only been in the last maybe two months where things have really gotten to some predictability. Ron?

I would say too in terms of just the global macro it came out yesterday or today that August [indiscernible] in the U.S. was the equivalent annualize of 15.3 million, which is up from before. About car registrations, in several leading European countries came out today was balanced. So that could be a precursor for decreased demand and that so, getting a little bit better visibility, but certainly not to the level of visibility we had going out with the high tech with as much confidence as we had before. So I think the sweet spot as we were able to comment on the second quarter, but that's as far as we can go.

And Matt, I think we were anxious to see once replenishment is complete and I don't know exactly what percentage it is right now. I'm not very scientific, but I drove by dealer labs in Wisconsin and Illinois, and they're pretty sparse yet. So we really have to see what does the consumer do maybe in our third quarter, maybe after the first of the year. I think that'll really tell what things are going to look like going forward.

Fair enough. That's quite helpful. And just a follow up regarding your commentary on the EV and hybrids, and it sounds like there's sort of an acceleration there, perhaps because of your program wins, but also, speaks to the investments by your customers in terms of making that a priority despite everything going on in COVID related, is that what you're seeing from your customers?

Yes. We're not seeing customers back off on launches in any way, shape, or form. I mean, even in March, April, May, the customer was clear in saying, hey, stay focused. Perhaps there's a program delay of a little bit but nothing significant. So that remains a focus for them. We've been in the power distribution, business and busbars since the days of IBM mainframe, so we were well-suited to provide busbars and battery disconnecting units and so on to the EV manufacturers. So, and we can provide that on three continents all at the same manufacturing quality level. So we see that continuing to grow, we'll probably grow at the market rate and probably a little bit better. So it's an area that we plan to be in and we're seeing that strategy we started years ago is starting to pan out.

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital. Please go ahead.

Just curious, I know there's still quite a bit of uncertainty sounds like a little better visibility that maybe were three months ago. But as far as gross margins and margins go, as you look at production from OEMs, and you guys ramping back up, is that reasonable get back to kind of historical margins next quarter, the quarter end or will it take a little bit longer to get back there.

I'll let Ron comment a little bit on it, but it is all volume related there's nothing that systematically that would say we couldn't or shouldn't get back to those levels. When that's a little harder to predict, but it is volume related. There's no issue that we have.

And Ryan, there is also a degree of mix with the Class As, being down year-over-year, and that's higher margin business for us. So to the extent that decreases faster than or comes on track, at a rate different than let's say the automotive segment, there could be a mix impact of that as well.

Got it. And then just want to circle back to kind of the EV awards in the quarter. But were those specifically for existing customers from the new OEMs. And then as you look at that pipeline, Don, I know you mentioned you guys expect to grow kind of in line to better, but how are you guys doing in those negotiations bids relative to historical win rates?

For the established EV players, and I think we do quite well. I mean, we track every quarter that Methode does worldwide. We track wins and losses. And in the EV area, we've done quite well. And if you think about it, as I said earlier, we've been in the busbar business a long time, but we bring the automotive pedigree along with that. So that gives us an advantage over maybe someone else who can make a busbar. But can they make it to auto quality standards that helps us quite a bit. And then, as I mentioned, the established EVs but we do provide product to the startups. And we were cautious on accounts receivable. But we're very well situated there. And there it's hard to predict which one will be the winner in that. But so I think we're pretty well covered in the EV market and we continue to develop products for the market.

Great. Last one for me, and then I'll hop back in the queue, but just on capital allocation sounds like M&A is, inorganic is a pretty big focus. But how do you think about kind of M&A multiples today versus where your stock trades potentially repurchasing shares instead?

That's a tough question. My first choice is an accretive acquisition, I think long-term that pays higher dividends for Methode than a discrete a stock repurchase, but having said that, as our balance sheet grows at a certain point, I wouldn't rule that out. We've done it in the past. But I don't want to speak for the Board, but I think we'd all feel that organic growth is critical, but also inorganic through acquisitions. The prices have not dropped and then we haven't announced an acquisition. Anything that fits prices are high, interest rates are low. The pandemic continues into next year, will some of the opportunities be less costly, potentially. I wouldn't roll out a stock buy back. That's we've done it before. But our emphasis is on growing the business.

At this time, there are no further signals. We turn to Mr. Don Duda for closing remarks.

Thank you, Melinda. We will conclude the call. Thank everybody for listening and wish everyone a safe and enjoyable Labor Day. Thank you all.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.